SBI to increase home loan EMIs

The move may result in higher bad loans.

State Bank of India (SBI) has decided to increase the equated monthly instalments (EMIs) on floating rate home loans for the first time after it raised interest rates over the past one year. Even though the bank expects the decision to result in higher defaults, it is planning to increase the EMIs by around 10 per cent.

The bank had hitherto resorted to prolonging the repayment tenure by up to 25 years as the interest rates on housing loans went up by 2 per cent over the last year. "So far the bank had not increased the EMIs (on home loans). However, the bank has no option now but to increase the EMIs," said Yogesh Agarwal, managing director and group executive (national banking), SBI.

The bank anticipates this move to add to the non-performing assets in its home loan portfolio. "The general expectation is once the EMIs rise, the repayment capacity of the borrowers will come down. We expect a small increase in the NPA level," said Agarwal. SBI had managed to bring down the level of gross NPAs in its mortgage portfolio to 3.76 per cent at the end of March 2007 from 3.96 per cent a year earlier.

The bank's housing loans portfolio stood at Rs 37,975 crore at the end of March 2007, accounting for 51.6 per cent of its retail advances.

According to OP Bhatt, chairman, SBI, "There has already been a slowdown in the growth of housing loans. For another month or two the slowdown is expected to continue."

SBI had reported a slowdown in home loan growth to around 18 per cent in 2006-07 from the 25 per cent level a year earlier.